blogTen SaaS KPIs for FP&A to Track
Have you heard the phrase, “Garbage in, garbage out” before? In computer science, it means you need to input accurate, relevant data in order to get representative, actionable results. Even a fantastic model is useless if you’re feeding it garbage. Tracking the correct SaaS KPIs is the FP&A equivalent for financial planning and analysis. You need the right SaaS KPIs to be able to make the right recommendations to the business to guide its growth and success.
In this article we’ll explore 10 key SaaS KPIs every FP&A team should be tracking, why they’re more nuanced than simple equations might make them appear, and why they’re so crucial for SaaS strength.
Why SaaS is Special
The KPIs that FP&A teams in SaaS companies need to know are slightly different to those required for other kinds of businesses, due to factors about the nature of SaaS companies. It’s for this reason that we’re focused on SaaS KPIs specifically in this article.
SaaS companies typically work on a recurring revenue model, and frequently offer multiple and sometimes complex pricing and billing structures which can include usage-based pricing, some fixed fees, different brackets or tiers depending on usage or engagement, custom pricing for enterprise clients, etc.
Additionally, revenue can vary depending on customer behavior, and both sales cycles and upsell cycles can be lengthy.
All of this requires that financial analysis and planning be tailored to meet the reality of the business’ revenue. Keeping on top of KPIs that reflect the reality is therefore vital to ensure that:
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any issues are spotted early on and mitigated as possible
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growth opportunities are identified and capitalized on quickly
10 SaaS KPIs FP&A Teams Should Track
Every company is unique, and there’s no single checklist of KPIs that match every SaaS company’s needs. The industry, the main target audience, the nature of any supply chains on which the business relies, the geographies involved in the business and so on may all result in additional KPIs that the business needs to track in order to understand its real financial picture.
That said, there are certain KPIs that are essential for all SaaS companies, and FP&A teams need to track them in order to be able to analyze the current state of the business, make forecasts, and suggest actionable recommendations. We’ve picked out 10 of the most crucial here.
For all of these, bear in mind that consistency is crucial, both in definitions of key terms such as “customer” and in terms of the time periods being measured and compared. Your FP&A team must be consciously consistent within its own KPI tracking and analysis, regardless of the variety of measurements elsewhere in the company.
SaaS KPI 1: Customer Count / Licenses / Subscriptions
One of the most foundational metrics of all when it comes to transparency on how the business is doing, and a crucial building block for all recommendations and predictions, is your customer count in one form or another. It’s absolutely essential for knowing how much business you have right now.
Depending on your business model and pricing structures, this might express itself most relevantly in a few ways, including number of companies as customers, number of users, number of group/team accounts, number of licenses sold, number of subscriptions sold, etc.
You may well want to know a variety of these, and the relationships between them – for example, the breakdown into pricing tiers etc. Additionally, in some companies different departments have different ways of measuring what appears to be the same metric. For instance, Customer Success may care more about relationships with individual people, or with primary points of contact, whereas Sales may care more about licenses sold.
It’s your job to check what’s being measured by whom, and make sure you’re using and reflecting the reality properly in your analysis.
Because this is a foundational metric (used as a basis for understanding and measuring many other things) it’s particularly important to make conscious decisions about what you want to measure, why and how.
SaaS KPI 2: Customer Engagement
In many cases, SaaS success lives and dies by customer engagement. For this reason, FP&A teams always need to be able to measure customer engagement. Again, what this means may vary depending on the product.
You may be aiming for customers to use your product daily in an active fashion, or have it embedded in important ways in their key infrastructure. You may ideally want a rough spectrum of usage across a month or quarter, or may prioritize the number of users engaged from a group.
This kind of metric isn’t something an FP&A team should define for themselves. Rather, it should be defined in collaboration with cross-departmental stakeholders and aligned with business goals.
SaaS KPI 3: Churn
Churn is the number of customers lost in a given time period out of your total number of customers. (Again, the definition of a customer is important here.)
It doesn’t matter how good your sales and marketing are at attracting new users, if your product isn’t sticky enough to ensure retention. What a good churn percentage might be varies from industry to industry, a form of benchmarking which FP&A teams should be aware of.
It’s important both as an absolute number, in terms of its reflection of your products’ successes or failures, and also in terms of whether it changes over time. FP&A teams can analyze possible sources of high churn, especially if the number has become more negative over time, and thus suggest solutions. It’s then equally important to track the effect of changes on churn.
Platforms that are designed for FP&A teams are often the easiest and most effective way to ensure that important changes are caught quickly and analyzed accurately.
SaaS KPI 4: Annual Recurring Revenue (ARR)/Monthly Recurring Revenue (MRR)/Net Revenue Retention (NRR)
Since SaaS companies typically work on recurring revenue – subscriptions and other forms of contractually recurring payment – revenue is usually measured as either ARR or MRR, or both.
ARR is the amount that customers have committed to pay for the year, including subscription fees, one-off fixed fees, platform fees etc. MRR is the amount committed per month, meaning that effectively ARR is MRR x12.
If usage-based pricing or tier-based pricing are in use, an FP&A team may want to have more than one version of ARR, typically an optimistic version, a standard version, and a pessimistic version, based on whatever is contractually required in addition to what is expected. MRR can help companies be more precise about how things are changing month by month, since the facts on the ground may change depending on customer engagement.
The easiest way to track any changes in MRR and ensure that these update your ARR assumptions is to ensure relevant data is centralized in a single platform such as Firmbase that updates in real time or even sends notifications about any significant changes.
Many businesses calculate NRR (net revenue retention) as well as ARR/MRR. NRR is the percentage of revenue that a company has at the start of a time period once expansion revenue and churn have been accounted for.
SaaS KPI 5: Burn Rate
Burn rate is the rate at which your company is “burning through” your available cash – so, usually, in the simplest sense the net cash spent across the board deducted from whatever income has come in.
Burn rate is obviously important as an indication of company status, but FP&A teams will need to be aware of relevant breakdowns within this metric as well. For instance, it’s important to distinguish between money spent on maintaining existing infrastructure and products versus money spent on R&D, or money spent on new customer acquisition (see KPI 7).
In the same way, income may include revenue from investments, grants, funding and so forth, as well as that generated from customers. While the overall burn rate is a vital number, FP&A teams will want to be aware of and regularly updated on the breakdown and how this changes over time.
Really understanding the company’s burn rate and its breakdown is especially important when FP&A teams are looking for ways to increase company efficiency.
SaaS KPI 6: New Customers
Another foundational metric, it’s always important to know how many new customers the business is attracting. Once more the definition of “customer” is all important here, as is any more detailed information relating to a breakdown by type of customer or contract.
FP&A teams will want to know the source of new customers (typically in SaaS companies there are multiple touchpoints as well as an initial entry point, and all are relevant – see KPI 7) and how this changes over time.
SaaS KPI 7: Customer Acquisition Cost (CAC)
The CAC is typically calculated by measuring the sales and marketing expenditure required over diverse channels and programs in order to acquire customers, divided by the number of customers acquired.
In some businesses, where channel partnerships or business development are important acquisition routes, FP&A teams need to ensure that these are also taken into account in the relevant segmented ways.
SaaS KPI 8: Customer Lifetime Value (LTV)
Customer lifetime value is the average value of a customer multiplied by the average customer lifespan. FP&A teams need this approximation, and to ensure that it is well understood within the organization, but as with other metrics covered here, will often want to ensure that their view is more granular. Customers may be broken down by more or less valuable segments, and variable probable lifespans.
This kind of information can be vital for FP&A teams in order to inform recommendations about what types of customers are most valuable to the business, and which therefore might be the best targets for sales and marketing efforts, or require most attention from account representatives.
FP&A teams need to see LTV in relation to CAC. If you’re spending more to acquire a customer than they’re worth to you overall, that is not a profitable business strategy in the long term, though it may well make sense as an initial growth engine.
Keeping track of this and ensuring that leadership is consciously aware of the tradeoff, helped by projections suggesting at what points the strategy may need to shift, is an important role that FP&A teams can fill in a growing SaaS company.
SaaS KPI 9: Customer Spend Shift
Customers may increase or decrease their spend over time, by adding more features or usage to their subscriptions or patterns, or ceasing to use as much or stopping to use certain features, etc.
FP&A teams need to be able to track these shifts in order to understand the impact on factors such as burn rate and LTV, and also because they are an important element of business health and growth.
The sooner an FP&A team can spot a problem in downselling, the sooner they can adjust projections and budgets as necessary, and work with relevant stakeholders to course correct. Equally, identifying positive upselling trends and analyzing the reasons behind them can be extremely valuable for a business.
SaaS KPI 10: Runway
Runway is the amount of time that a company has left given the amount it currently spends, the amount of revenue it generates, and the amount of cash it has on hand. Runway may be increased or decreased by changes in these factors.
It is vital for leadership teams to be acutely aware of their runway at all times, and FP&A teams are often involved in efforts to extend the runway when this is necessary, whether because of external market factors, a need to pivot, unexpected bumps in customer relationships, etc.
Evaluating the myriad factors that might go into extending runway, and the impact that changes might have on the company, can be complex, and is best done by centralizing data in a single platform designed for financial analysis.
SaaS KPIs in Context: Rule of 40
We have been discussing SaaS KPIs largely on an individual basis in this article, but it is important to note that there is no one right answer for any of these metrics. What you might want your numbers to look like may vary from company to company, industry to industry, and growth stage to growth stage.
As we have discussed previously, SaaS companies need to make conscious decisions about the balance they are aiming for between profit and growth. This is most neatly encapsulated in the Rule of 40.
Tracking SaaS KPIs is Just the Start
Accurate data is essential to understanding the true health of a business, as we said at the start of this article. For FP&A teams, however, tracking SaaS KPIs is just the start. The real work comes in analyzing how different KPIs are connected to one another, the causes behind changes, and what might be altered in the business to improve them.
Additionally, FP&A teams need to approach SaaS KPIs in line with the overall company goals and priorities. What counts as success depends on where and what you’re aiming to reach.
With crucial information collected from across the organization, standardized, and centralized in a single platform designed for financial analysis, such as Firmbase, FP&A teams can evolve the insights on expenses, sales forecasts, business plans and more that are necessary to see how the business is performing, and how it might be improved.
See how Firmbase automates up to 80% of your manual FP&A workload, helping you track KPIs more efficiently.
